Investing as Performance Art
The security analyst Bruce Schneier describes many of the security measures on public display as “security theater”: a meaningless set of rituals designed to provide a comfort blanket. He argues that these measures provide no useful protection and mainly serve to make our lives more difficult, increasing the risks we have to take while simultaneously restricting our freedoms.
I’d argue that much of the performance art we see around investing serves much the same purpose – and with much the same outcome. Box ticking regulations don’t actually do much for investors other than make their lives more confusing and difficult; but with a lot of thought, and a bit of investing theater, we might be able to better align real risk and perception to everyone’s benefit.
Regulating Stable Doors
Here’s how Schneier describes the problem:
“Security theater refers to security measures that make people feel more secure without doing anything to actually improve their security … the propensity for security theater comes from the interplay between the public and its leaders. When people are scared, they need something done that will make them feel safe, even if it doesn’t truly make them safer. Politicians naturally want to do something in response to crisis, even if that something doesn’t make any sense.”
Underlying this is the issue is that security theater can actually make things worse. By responding to the last threat we divert resources away from the difficult task of figuring out what the next one is. This, of course, is the classic problem of financial regulation. Regulators still haven’t managed to fully implement the Frank-Dodd law passed in 2011 to deal with the problems encountered in 2007-2008. Today, our money is mainly being stolen by pimply hackers in dingy bedrooms. One can expect a regulation about this sometime in 2032.
Bad Attitudes
The tendency to engage in knee-jerk security theater promotes exactly the wrong psychological attitude. Terrorists want to undermine our societies and destroy our freedoms – introducing stupid laws that target extremely specific situations which simultaneously limit our liberty is doing exactly what they want.
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